Junk health insurance is a con, as the policies cost so little and provide minimal coverage that they are worthless. Unfortunately such plans, which are also called mini-meds are peddled and even offered as “benefits” by some employers.

Under junk health insurance policies an insurer charges a small premium that pays for a small amount of coverage. A policy with a $20 premium might provide $500 or $1,000 worth of coverage.

If you’ve been to the doctor or the hospital in the last decade you can see the problem here. The so-called policy won’t pay for much more than a basic checkup or a couple of x-rays. If you really hurt yourself, need an operation or additional medical testing the policy won’t pay for it.

However, junk health insurance also comes in a number of different forms. Besides mini-meds there are so called discount plans, which offer discounts on a specific product or service such as prescription drugs.

Another variation is a fixed indemnity plan which pays for a specific amount of healthcare. The problem is that most of these plans don’t provide enough coverage to pay for hospital stays or major procedures. These plans come with rigid limits that will only pay a portion of the cost.

Junk Health Insurance and Obamacare

Having a junk health insurance policy can get you into real trouble when the Obamacare individual mandate starts in January 2014. This law requires all Americans to have health insurance or pay a $95 a month tax income tax penalty.

The problem is that most junk health insurance policies will not qualify as health insurance under the Affordable Care Act. That means that people with one will still have to pay the penalty. Not only will consumers with junk policies have little or no coverage they will pay extra taxes.

Fraudsters are peddling junk health insurance policies as a low cost means of complying with Obamacare. A lot of people with these plans will get a nasty surprise when they file their tax returns.

How to Spot Junk Health Insurance

Fortunately spotting junk health insurance is pretty easy. These polices are easy to spot because of their incredibly low prices. A healthy adult should be paying an average between $200 and $300 a month for health insurance in the U.S. right now. If the premium is less than $100 there’s a good chance you’re dealing with some sort of junk health insurance.

Read the policy carefully and see what it actually covers, and if it doesn’t provide several thousand dollars’ worth of coverage a month it is worthless.

Another sign that you are dealing with junk health insurance is that there is no list of what’s covered. A real health insurance policy should come with a long list of covered procedures, tests and treatments. If it doesn’t it is probably junk.

The only source of lower cost health insurance under Obamacare will be the health insurance exchanges. These are not supposed to start functioning until October and there will only be one in most states. The exchanges will be the only place consumers can buy health insurance to get tax credits.